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    Posted on Sunday, 08.09.09
    Cuban economy feels heat of world downturn
    Cuba's economy was already in grave condition before the worldwide
    recession struck. Now, the government is imposing even harsher rationing
    of electricity and food.

    Fernando used to have a cushy job in Havana as a teller in a government
    bank office with air-conditioning, a nice computer and a bank-provided

    Not anymore.

    Amid Cuba's deepest economic crisis in nearly two decades, his office
    has shut off the AC and his computer constantly crashes because of the
    heat, exasperating him and his customers. His lunch, Fernando said, has
    “shrunk to a snack.''

    Driving the bulk of the crisis has been the world recession, which
    slashed demand and prices for Cuba's few exports, like nickel, and
    choked off new credits to a government already deeply in debt. Add the
    island's internal woes, and Raúl Castro's recent description of the
    problems as “a matter of national security'' seems like no exaggeration.

    After Castro replaced brother Fidel, “most Cubans hoped for some
    improvements in the medium term. But now everyone is preparing for worse
    and worse,'' said one Miamian who recently returned from a visit and
    asked for anonymity to protect her relatives there.

    Castro has adopted Draconian measures to survive the storm in the short

    To cut electricity consumption by 12 percent — Cuba imports half its
    oil needs — the government has shut down many factories and ordered
    state office buildings, theaters and other facilities to shut off their
    ACs. Inspectors also are cracking down on Cubans who steal electricity
    through illegal hookups with $23 fines — about five weeks' worth of the
    average salary.

    “Banks are built to keep out robbers, not to let in a breeze,'' said
    Fernando, who asked that his surname not be published because of fear of
    government reprisals. “Without [air conditioning] . . . my office is
    two bus stops past hell.''

    Some hospitals also are shutting down their emergency rooms for two
    hours a day, and elective surgeries are being postponed until
    electricity services become more dependable, said Elaine Scheye, a
    Chicago consultant who has studied Cuba's health system.


    Portions for many rationed foodstuffs have been cut — red beans and
    chickpeas from 30 to 20 ounces a month, salt by half to about four
    ounces per month — while food deliveries to factory, office and school
    cafeterias have been trimmed, according to official announcements.

    Harsh police crackdowns on the food black market — apparently an
    attempt to ensure that more items reach the legal outlets — have driven
    up prices yet left many of the legitimate sales points with shelves
    oddly bare, Havana residents say.

    Even foreign businesses are suffering, with the government tightly
    controlling withdrawals from their accounts. Castro also replaced his
    entire economic Cabinet in March, and just last week the legislature
    created a comptroller's office to attack official corruption.

    Yet many analysts in and out of Cuba argue that those belt-tightening
    moves are far from what's needed to address the crisis.

    “Mercurochrome and Band-Aids for deep wounds with heavy bleeding,''
    Miami activist Juan Antonio Blanco wrote in his blog, Cambio de Epoca
    (Epochal Change). Even the official Granma newspaper called the
    situation “grave.''


    Cuba was already in deep trouble by the fall of 2008, after four
    hurricanes caused $10 billion in damage — equivalent to a whopping 10
    percent of its gross domestic product (GDP) for 2007. Imports for 2008
    spiked 41 percent to $14.2 billion from the previous year while exports
    remained flat at $3.7 billion, meaning the island's already huge trade
    deficit mushroomed by 65 percent.

    Food imports alone rose from $1.5 billion in 2007 to $2.2 billion last
    year as the government tried to replace hurricane-damaged harvests,
    according to official Cuban figures.

    And then the world economy plunged into recession, drying up lending
    markets. Foreign commercial lending to Cuba fell by $1 billion in 2008,
    according to the Bank for International Settlements, a crippling blow to
    a government that for the past decade had been taking on ever larger
    debts to pay for imports and older debts — “financing by arrears,'' as
    one economist put it.

    Russian auditors reported last month that Cuba had failed on three dates
    to make payments due on a $355 million loan signed in 2006. And some 80
    Cuban government enterprises postponed payments to foreign creditors
    this year, according to Carmelo Mesa Lago, a University of Pittsburgh
    expert on the Cuban economy.


    With remittances and tourism expected to be flat this year and the price
    of nickel — 41 percent of Cuban exports — at about 25 percent of its
    2008 levels, the outlook for 2009 remains grim. Over the past month
    Havana cut its predictions of 2009 GDP growth from 6 percent to 2.5
    percent and then 1.7 percent — though some Cuba economists are
    privately predicting a .5 percent drop.

    “The country is again facing a situation as adverse'' as the early
    1990s, the U.N.'s Economic Commission for Latin America wrote earlier
    this year. Cuba's economy shrank by 35 percent after the Soviet Union
    collapsed and cut off its $4 billion-$6 billion annual subsidies to Havana.


    Since Raúl Castro officially assumed power in early 2008, he has also
    been putting in place several longer-term reforms that he hopes will
    give Cuba a more productive, streamlined and less centralized economy.

    In his government's most ambitious effort, it has loaned 1.7 million
    acres of fallow state lands to 82,000 Cubans, hoping to increase food
    production and slash costly imports. It also shifted Acopio, the
    notoriously inefficient agency that gathers and distributes farmers'
    products, from the Agriculture to the Domestic Commerce Ministry.

    The government also has increased some salaries as incentives to
    productivity, allowed Cubans to hold more than one job at a time and let
    retirees to return to work. Castro last week predicted cuts in
    government spending on health and education, and said imports would be
    cut back this year.

    Havana also has hinted that it is studying opening the doors wider to
    foreign investors and abandoning the costly food rationing system. One
    leading Havana economic analyst, Ariel Terrero, even suggested recently
    that the government put more of the economy “in the hands of
    producers'' — for example, allowing state grocery or clothing shop
    workers to run their own enterprises.


    Despite early speculation that the reputedly pragmatic Castro would move
    Cuba toward a Chinese-like “market socialism system,'' his reforms have
    remained relatively moderate.

    Brother Fidel remains a powerful opponent of more profound changes even
    three years after he was last seen in public, analysts say, and Raúl
    Castro must know that opening Cuba to more market forces could fuel a
    potentially destabilizing increase in the island's social and economic

    In a keynote speech to the legislature last month, he prescribed a move
    toward a kind of “rational socialism'' that will preserve Cuba's
    political system while cutting back the bureaucracy, state subsidies and
    waste, and increasing productivity and efficiency.

    “It's a matter of defining, with the broadest popular participation,
    the socialist society to which we aspire and can build, given Cuba's
    current and future conditions — the economic model that will rule the
    life of the nation in benefit of our people,'' Castro said.

    Lest anyone get the wrong impression, Castro added a caution.

    “I was not elected president to restore capitalism in Cuba or surrender
    the revolution,'' he said. “I was elected to defend, maintain and
    continue perfecting socialism, not to destroy it.''

    Cuban economy feels heat of world downturn – Cuba – (8
    August 2009)

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